THE price of petrol is set to rise again following the recent Federal Budget, thanks to the government bringing back the indexation of the fuel excise.

To explain what that means, the fuel excise is a tax on petrol which has been frozen at 38.1c per litre since 2001. That excise will now increase twice a year in line with the Consumer Price Index, with the additional revenue funnelled directly into road infrastructure.

But with the average capital city price at the pump already hovering around $1.50 per litre, where is the rest of your hard earned cash going? And why do prices fluctuate so dramatically day-to-day and between suburbs and states, given the excise has been frozen for so long?

Well, here’s a wrap of what drives petrol prices so you’re aware of the factors that could help you buy better.

WHAT DRIVES THE PRICE?

The price of petrol in Australia is linked to the international price of refined petrol, set by the Singapore Mogas 95 Unleaded benchmark (which is priced in US dollars).

So if the Mogas benchmark price rises, the cost of petrol at the pump will typically follow and vice versa. Although the length of the fuel supply chain means the change could take a week or so.

The value of that Mogas benchmark is driven by many things, including the price of crude oil, global supply and demand for petrol. Because it’s denominated in US dollars, it also fluctuates based on our currency exchange rate, which has been a great help in recent years.

In fact, ACCC data shows Australian petrol prices are the fourth cheapest in the OECD group of advanced economies, only pipped by Canada, the US and Mexico.

And in case you’re wondering, it’s a similar story for diesel fuel, which is tied to the Gasoil 10 ppm benchmark.

WHO GETS WHAT?

Price drivers are only part of the story.

According to the ACCC, the value of the benchmark price of petrol only makes up around 50 per cent of the overall price at the pump.

The next biggest culprit is, you guessed it, taxes.

The fixed fuel excise is not the only tax the government slaps on petrol ... it also charges GST at 10 per cent of the price.

In total, taxes account for around 38 per cent of the bill every time you fill up the tank, which is actually quite low by international standards.

Still, this revenue stream nets the government over $17 billion a year at current levels, with an additional $2 billion expected by 2018 thanks to the reintroduction of fuel excise indexation.

Finally, the remaining 12 per cent is split between the companies that get the petrol to your tank (retailers, distributors and wholesalers) and of this, the Australian Institute of Petroleum estimates only 2 per cent is taken as profits. The rest just covers costs.

WHY DO PRICES CHANGE FROM DAY TO DAY?

So that’s the back end. What about the day to day pump prices?

This is known as the petrol price cycle and is a result of petrol retailers competing for business through aggressive and ongoing discounting.

Once the discounting becomes too unprofitable and unsustainable, the price of petrol spikes up again quickly, ending the cycle.

This varies state to state and there are recognised petrol price cycles across Sydney, Melbourne, Brisbane, Adelaide and Perth.

Information on the best time to buy is available from a number of sources, including the ACCC.

And on that old perception that retailers push up prices on public holidays, the ACCC investigations found there is little evidence to suggest this is the case.

It could just be the cost of a tank is front of mind as holiday-makers fill up for trips away.

So, fuel excise indexation or not, we’re afraid all you can do is look online and buy at the best time.